New Signs the Next Global Financial Crisis Begins with China
The Chinese government has been eager to stimulate growth. Like in the U.S. and many other places, China’s leaders have been using the central bank to keep interest rates artificially low, print cash, and bail out friends in private-sector banks whenever their reckless lending caught up to them. Someday the debt bubbles nations are blowing will grow beyond the ability of central bankers to manage without destroying their currencies.
Against that backdrop, the emerging prospect of a credit crisis in China bears close watching. Few are better at spotting trouble than Hayman Capital’s Kyle Bass. He made the case as to why a crisis is brewing in an interview with Bloomberg last week.
When banks stop lending to one another, or start charging punitive interest rates, trouble is brewing. We learned that lesson during the 2008 financial crisis. Interbank lending rates in China recently spiked from 3-&frac;% to over 9%.
By many measures, the credit bubble in China is even more unmanageable than America’s was in 2008. Meanwhile global banks are bigger and more interconnected than ever. A crisis starting in China will almost certainly not end there.